Safeway Profit Hurt by California Strike

NEW YORK – Safeway Inc.'s (SWY) second-quarter profit dipped 4 percent in the aftermath of a corrosive Southern California strike that alienated many of the struggling supermarket giant's employees and customers.

The nation's third largest grocer said Tuesday that it earned $155.2 million, or 35 cents per share, in the three month ended June 19, down from $161 million, or 36 cents per share, at the same time last year.

Sales for the period totaled $8.36 billion, a 1 percent improvement from $8.25 billion last year.

The earnings per share fell 2 cents below the mean estimate among analysts surveyed by Thomson First Call. That seemed to disappoint investors, as Safeway's shares fell 89 cents, or 4 percent, to $20.98 during Tuesday's trading on the New York Stock Exchange (search).

Although a 4 1/2-month strike in Southern California was settled shortly before the second quarter began, the aftershocks of the dispute are still shaking Safeway. The Pleasanton-based company said many of its longtime customers continued to shop elsewhere in the second quarter, lowering its profit by an estimated $50 million, or 11 cents per share.

Since the strike began last October, Safeway has traced $275 million in losses to the dispute — one of the longest and most expensive in supermarket history.

Two other supermarket leaders, Kroger Co. (KR) and Albertsons Inc.(ABS), formed a united management front with Safeway during the Southern California strikes, but labor leaders blamed the standoff primarily on Safeway and its chief executive, Steve Burd.

Burd expects the strike to pay off in the long run, though, because the company won wage and benefit concessions from employees, providing savings expected to significantly lower the grocer's future expenses as it competes against discount rivals such as Wal-Mart Stores (WMT)and Costco (COST).